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Stock dividend calculator
A dividend reinvestment plan (DRIP) is a simple way to increase your income and savings. Under this system, you keep an allotted amount of money for investing in stocks or stock-related products.
Each time a company releases a new share of cash as dividends, you purchase that stock using the funds from your investment account.
You can use the extra money to buy more shares, or invest in another company with a similar DRIP program. The length of time each investor chooses to hold their investments varies per person.
This article will go into detail about how to start a DRIP, what types of companies have DRIPs, and how to pick which ones are right for you. The stock drip calculator above will automate the manual calculations explained below.
Calculate your target allocation
A growing number of large companies are initiating dividend reinvestments (DRIs) as part of their investment strategy. DROs allow shareholders to set aside some of their dividends for future purchases or re-invest in the company’s stock through an employee share purchase plan (ESPP).
By using this strategy, investors can continually increase their return without having to actively manage the stocks themselves. The whole process is done automatically by investing platforms and experts have advice and tools that make it easy for anyone to get started.
There are several different strategies you can use when implementing a DRI program, so what matters most is finding one that works for you. Some people may choose to start with only income producing shares while others may opt to maximize growth. It really depends on your personal goals and how much time you have to invest in the market.
Choose your eligible stocks
The dividend reinvestment strategy is one of the most simple but powerful investing strategies out there. All you have to do is invest in dividends!
You can choose whether to buy stock shares directly or not, but what I recommend is buying ETFs which are like a securities market index fund that contains companies’ dividends.
By owning these funds, you will be making an investment in all the companies within the fund so it acts as a portfolio. And because they contain dividends, those get invested in well for you.
This way, you will still receive adequate returns while also being able to re-invest those proceeds back into more money creating a positive cycle.
Dividend paying stock ETFs
There are several good stock ETFs that reward their shareholders with substantial dividends. Two of my favorite dividend companies are JEPI and AGNC.
The Dow Jones Industrial Average (DJIA) is a great benchmark to use when comparing the value of different stock ETFs. By looking at how much each company in the DJIA pays out per share every month, we can determine which ones offer the highest return on investment (ROI).
That ROI can then be used to increase the price of the ETF or purchase additional units. A higher cost means greater potential profits!
Here are some broad index ETFs that pay lots of dividends:
* DVY — $1.50 monthly dividend
* IEP — $2.00 quarterly dividend
* AGNC — $0.12 monthly dividend
* JEPI — variable monthly dividend, usually ~$0.49-$0.62
Consider your tax situation
A growing number of large companies are offering special dividend reinvestment plans (DRIPs). This is a great way to invest in their stocks while also investing directly in their dividends.
The basics of a DRIP are that you purchase shares of the company’s stock at its regular price, but instead of buying it as individual shareholder you're given additional options.
You can have the stock sent to an online brokerage account or retail store where you can then buy more shares or transfer up to a certain amount to your personal portfolio.
This is done through the company's broker-dealer network so there are some fees involved depending on how much money you make per year!
By using this service, you get all of the benefits of owning part of a business plus immediate access to capital by having these funds available for future investments.
Consider your risk tolerance
The next step in the dividend investing journey is determining how much risk you are willing to take. Some people feel that no company can survive with less than its average earnings, so they stick to companies that at least meet this bar.
This approach eliminates most stable dividend stocks because even a small decrease in income would make them uninvestable. This isn’t necessarily wrong but it does limit what type of dividends you own.
Other individuals believe that any drop in earnings is too large of an investment to have, and will not invest in a stock if it falls below its median earnings.
This excludes all stable dividend stocks because none of these could ever be invested in without running the risk of losing money. What kind of investor would want to run such a risky business?
Weighing these two risks against each other, we must conclude that there is no right or wrong way to invest. Different people have different levels of risk they are comfortable taking, and thus require different amounts of stability in income.
Consider your time horizon
A growing number of large companies are offering their shareholders dividends that they can spend immediately or at least soon. This is a very good thing as it gives you two choices! You can either hold onto these shares, which will earn a dividend pay out in the future, or you can sell them and use the money to invest in other areas.
This strategy was popularized by Warren Buffett, one of the greatest investors of our times. He encourages investors to look for high-yield stocks with strong fundamentals and substantial earnings growth.
Dividends are a relatively fixed income source that retain the stock's value even if the company stops paying them. If the company continues to grow its earnings, then you get a double benefit - more income now and longer term growth.
Consider your inheritance
A growing stream of new information suggests that the best way to use your wealth is not simply saving it, but investing in dividend-paying stocks or investment strategies that produce dividends. By reinvesting these dividends back into more shares of the company, you can keep buying stock long term while also receiving periodic returns!
Many experts agree that this is the most effective way to invest for retirement. The average person needs to save around 9 - 10 years income after tax to reach the ‘retirement’ stage, so skipping this key period by spending all your savings could mean less money later.
That said, there are some who suggest that owning a few large companies can be just as good ( if not better ) than frequent small purchases via dividend investing. It depends what your goals are and how much risk you're willing to take.
Dividend investing was popularized during the 1980s when many people were talking about retiring at age 50. Since then, however, technology has made it possible to stay in the workforce longer, making this advice outdated.
These days, pensions make up half of all employer contributions, leaving little room for individuals to reap the benefits of dividend investing.
Should I reinvest my dividends?
The important thing to note about dividend reinvestments is that they can be done either at the company level, individual stock levels, or both.
At the company level, your firm could decide to direct some of its quarterly dividends back into more shares of the business. This helps in two ways: first, it gives shareholders an additional stake in the company, which is always a good thing; second, it allows the company to spend money more efficiently by investing in technology or marketing equipment as opposed to buying personal items like cars or homes, etc.
At the individual stock level, you can choose to have the investment management team at your firm’s discretion whether to reinvest their company dividend income in the form of new shares or not. Some may feel that this capital is already invested and would rather use it for something else.
However, there are many reasons why having extra shares is a great way to grow wealth, such as increasing potential earnings per share, creating a larger pool of savings, and providing greater liquidity (the ability to sell one’s shares easily).
Consider your spending habits
A lot of people talk about dividend investing, but few actually do it. The reason is that many people don’t understand the concept fully or don’t know where to start with dividends.
A good place to begin is by looking at how you spend money. If you find yourself buying lots of expensive clothes or gadgets, for example, then investing in stocks or bonds that offer steady income benefits may be more appropriate than choosing dividend companies directly.
Alternatively, if you keep most of the money in the bank (especially given the low interest rate environment we are currently experiencing), then stock picking via dividend strategies might make more sense.
Either way, though, diversifying your investment portfolio is important so that no sector of the market dominates the earnings pie. So whether you choose direct investments or indirect ones such as through asset allocation, staying diversified is key to making sure your wealth stays around.